Buying Local, Trade, and Protectionism

I always buy locally-made products…unless I can find non-locally-made products of the same quality for a lower price.

“Buying local” is one of the current trends in our culture. Various companies and brands craft entire marketing campaigns around the fact that their products are produced locally, made out of local materials, and/or created with local labor. Now, why would the fact that a company is selling “local” products be persuasive and enticing to consumers?

One potential explanation would be that local consumers buy into a variation of “protectionism” on a smaller, local scale.* This explanation would argue that local consumers want to support their community and facilitate economic wellbeing within the local business environment by shopping primarily or exclusively at local dealers. This might be more of an emotional situation where consumers not only buy a product, but also purchase a good feeling of sorts.**

One of the problems with this line of thinking is the same problem that large-scale protectionism faces. When considering the economic well-being of a certain area, one must look at both the producer and consumer side of things. Buying local products at a higher price (and from my experience these locally made and marketed products tend to be more pricey) may benefit certain local producers but it also hurts local consumers (including you). If a whole bunch of consumers buys overpriced, locally-made coffee, the local coffee shop benefits at the expense of the five consumers.*** Therefore, it is difficult to argue that the local community is better off on net.

And why should local producers be my primary concern? Not to say that I should intend to hurt my community, but this sort of thinking can have the effect of hurting many foreign (or non-local) producers. Think of producers many states away who are efficiently producing cheaper, equal quality goods. Why should I turn away their products, which are of equal quality and a lower price?

Competition and trade forces producers to innovate and cater to consumers. Therefore, consumers should want as much trade as possible and as many product options as possible. This forces producers to use their time and resources in the most effective way possible. If local producers know that I will buy their goods because I am emotionally motivated to support them, then those producers will not be worried about their non-local competition and will be less likely to innovate, produce quality goods, and charge low prices. While this is a much smaller scale example, the “buy local” marketing scheme is similar to an import tariff in that it attempts to limit local consumption of non-local goods.

Now some might say that it saves resources to buy local. And this may or may not be the case. Dr. Arnold Kling in his recent book Specialization and Trade: A Re-Introduction to Economics argues that buying local can actually waste resources:

“Many people believe intuitively that it saves resources to “buy local.” Surely, we think, cheese or vegetables from a local farm must save on the energy required for transportation. However, if the grocery store sells cheaper products that comes from hundreds of miles away, some factor must offset the higher transportation costs. Chances are, the land elsewhere is more suited to growing crops, so that fewer acres are being used to produce a given amount of output. The local land might be better used for housing or as wilderness.
Water or other resources may be used more heavily locally than on distant farms. Whenever produce from distant farms is cheaper than locally grown produce, the price system is telling us that “buying local” wastes resources.”

So next time you are tempted to buy a product merely because it is locally-made, consider the bigger picture. Look into non-local options and try to use your purchasing power to support producers who make the highest quality product in the most efficient way possible. Don’t discriminate against high quality, cost-effective producers just because they live far away from you.

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If this post resonates with you or irritated you, leave a comment below and tell me what you think of it. You can always send me an email as well; I’d love to hear your thoughts. Thanks for reading!

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*Ironically, one of the most startling side effects of protectionism is that a significant portion of local producers is actually harmed by this type of behavior. Every dollar spent subsidizing the inefficiencies of one producer is a dollar that could have been spent supporting the innovative and efficient ones.

**The price that consumers pay for “local” goods could potentially involve a base price, which would be identical to the price of the product elsewhere, plus a premium to support the local market. This premium portion of the price would then be similar to a charitable contribution in the sense that the only benefit the consumer receives for this added cost is a good feeling for having “supported” the local community.

***How do producers benefit at the expense of consumers? After all, this is voluntary trade, which should be mutually beneficial. The key here is that consumers do benefit, but they could benefit even more by buying a less expensive product of equal quality elsewhere. Thus, this transaction is at least somewhat inefficient, because consumers bear an extra cost without a corresponding benefit.

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12 thoughts on “Buying Local, Trade, and Protectionism

  1. Does buying the most efficiently produced / inexpensive product always the best option? What did the producer is a terrible polluter (like producers in China or India), uses unsafe practices for their employees, or has other costs involved. If I buy the most efficiently made “food” I might be eating processed junk that my body cannot digest or can cause major health problems down the road, I may have saved money in the short term, but will have potentially expsensive medical bills in the future. Whereas if I buy the organically grown vegetable, grass fed beef, etc. I’m buying what some would say is an inefficiently produced product. However, I might be saving lots of money in the future and maybe helping out an actual neighbor instead of a of a faceless factory farm which dumps tons of harmful chemicals in the soil which work their way into the water causing harmful effects for many. I’d rather buy a more quality head of lettuce from someone I know and pay a little more if I’m potentially helping a neighbor than from a farm 1500 miles away (which I think is the average distance a head of lettuce travels).

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    • Thanks for the comment! I really tried to stress that this article related primarily to comparing goods of equal quality. If a local good is of higher quality, then it makes perfect sense to pay more for it. I’m not at all saying that one should always buy the cheapest food, regardless of the quality. I was trying to say that paying more for a locally sourced good, just because it is locally sourced has some does not always make sense to me. And I think that the assumption that non-local producers are definitely using unethical business practices (i.e. dumping chemicals) doesn’t make a ton of sense. I would want to know for sure that the business I was boycotting was operating in this way before turning away their business.

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  2. Also, I what do you think about this scenario:

    A producer in Kentucky can make widgets for $4. The EPA, OSHA, and other government agencies tell him he has to meet certain guidelines which don’t allow him to be as efficient as he can and increase his price to $6. A producer in China can produce widgets for $4 and ship them back to the US because he doesn’t have to abide by any such regulations and puts the gentleman in Kentucky and all his employees out of work. Should our government level the playing field to protect its own people? What if this factory owner attend your church or lives next door? Is there a moral aspect to our purchases?

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    • Thanks again for the comment! I do want to acknowledge that there are complexities to the trade market, such as regulations, currency fluctuations, etc. I made comparisons to protectionism but didn’t talk about it directly because, while it is similar to the situation I discussed, there are also a number of differences. And honestly, I still have a lot to learn about the arena of international trade, but I’ll say what I can on the issue.

      I understand the desire to level the playing field to some extent, but I have a couple of thoughts on the matter. First, how to the initial regulations affect things? If they are causing the inefficiency and imposing a cost (higher prices) without any further benefit (better quality), then it would make sense to look to change those regulations, rather than impose further regulations to fix the mistakes of the first ones. Maybe all the U.S. companies moving overseas should be a signal that we have a toxic business environment where producers are systematically being overtaxed and overregulated? If the regulations actually worked to increase quality, then it shouldn’t matter how low the foreign producer’s price is because his goods will be of lower quality. Second, this scenario assumes that it is the regulations that cause the local producer to be inefficient, and that in a fair situation the local producer would outcompete the foreigner every time. And given the numbers you presented, that is true, but I’m not sure that we can assume this is always the case in the real world. Could it be that the U.S. is not the best producer in every industry and should leave certain markets to specialize in others? I don’t know for sure, but I think it is worth considering.

      I think there is a place for supporting people you know and/or your neighbors. When a cousin or friend sends out a support letter for a mission trip, I am more likely to contribute than if it were someone I didn’t know. And my second little footnote tried to explain some of the reasoning why people might tend to buy local, comparing it to making a charitable contribution. I am not saying that this type of behavior is necessarily wrong, I just want the implications of this action to be understood. If you want to willingly pay more for something that you could get elsewhere at a lower price, that doesn’t offend me. I’m just trying to explain that this type of behavior has a charitable component to it and it not purely equitable from a cost/benefit perspective. But if you as the consumer choose to engage in this transaction anyway, that’s perfectly fine. You just need to know that (to some level) you are promoting inefficiency in the market. But since you (as the consumer) are the primary person who loses out, as long as you know what’s going on, feel free to buy from whoever you want. More than anything, the goal of this post was to raise awareness. If the information presented here doesn’t change minds, then that’s fine with me.

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      • I also think it’s worth bearing in mind that if a company is offering a product at a lower price at the cost of environmental destruction, it is very possible that the free market will take its course and consumers, will choose to purchase a product at a slightly higher cost with the knowledge that this product isn’t damaging the environment. I think hybrid/electric cars have sort of shown this to be the case (although they also come with the added benefit of saving on gas).

        I agree with your point about the corporate climate in the US. I don’t understand how people will complain about large US corporations keeping their money overseas, without mentioning our absurdly high corporate tax rate. There is little to no incentive for companies to bring their profits back home when they will be taxed 20-30% more on them.

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    • I know that it’s tempting to reject the assumption of rationality right off the bat, and throw up one’s hands and say that this type of economic modeling doesn’t work. I know I’ve been in a number of classes where it seemed like certain types of people (particularly criminals, for example) behave irrationally. I don’t think, however, that this is a good place to start. If we quickly discard the idea of rationality, then we basically say that costs and benefits have no effect on consumer behavior, which would make consumer analysis very difficult. Rather, I think it is better to assume rationality unless it can absolutely be proven otherwise. My second footnote tried to explain the rationale that consumers might have for behaving the way that they do, which has to do with personally felt benefits. I don’t think the issue is necessarily irrationality but is rather a lack of information/understanding or differing tastes and preferences. Does that make sense?

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  3. Also, as I pointed out, restricting trade benefits certain local producers at the expense of local consumers by raising prices. Additionally, this gives consumers less money to spend on other (more efficient) local producers. So when thinking about the overall wellbeing of the community, there is more at stake than merely the well-being of a certain group of producers. There are a number of unseen costs of subsidizing the inefficiencies of a group of producers and not letting the market direct things towards efficiency. My goal was to explain some of these costs.

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  4. I appreciate the interaction. I don’t necessarily disagree with anything you said. I’ve been thinking/reading about these things for a while off and on. Keep up the good work Jonathan.

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    • I appreciated it as well. You gave me a number of things to think about, especially in terms of foreign trade. Admittedly, I still have a lot to learn about all of these topics and I get excited about posting various things that I’ve been thinking about, even when a lot of my thoughts have not been developed super well. We’ll have to grab coffee and chat sometime soon. I’d love to hear more what you’ve been reading and thinking about lately.

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      • I hope I didn’t come off as a troll. I was just getting some thoughts out there. I’m looking for pushback so I can sharpen my thoughts. You provided that, thanks!

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  5. Not at all. I didn’t take any of your comments as trolling. They were all very thought-provoking and I would definitely say that your comments helped me think through these issues a little more thoroughly. As I said before, thank you a lot for commenting! I appreciate the feedback and the interaction a lot. It’s nice to have someone interact with my thoughts and offer another perspective to the matter.

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